- quote -

NO!

In a 1031 exchange, you need to have a qualified escrow
agent to take and control all proceeds from the sale of the
old property. Then, new property has to be identified within
a specific time frame and purchases.

Bruce Raskin, CPA
Small Business and Individual Tax and Accounting Services

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The rules for 1031 exchanges are relatively simple. You must
identify the new property to be exchanged into on or before
45 days after closing on the old property sale. You must
complete the purchase of the new property within 180 days
after closing on the old property sale. At no time may the
money from the sale touch your hands. You can't put it
anywhere. The exchange must be set up before the close of
escrow so that the escrow company, if it is not acting as
the middleman, can transfer the funds to an appropriate
accomodator/facilitator/middleman who will acquire the new
property with it. Since you have not identified a new
property yet, I suggest you get looking, and while you're at
it ask your escrow company about an accomodator for the
exchange. You may be able to remove some cash from the
purchase end of the transaction but it will amount to
approximately the total of the selling and buying expenses.
I have a spread sheet that computes all this including gain
recogonized and gain realized . The mortgage balances
of the old property and the new property figure into the
computation. If you receive any cash from the sale, there is
the probability that it will be taxed. Without an exchange,
the first $20K will be treated as recapture of depreciation
not capital gain. Depreciation recap is taxed at a maximum
rate of 25%. The amount over the original purchase price is
capital gain.

Linda Dorfmont E.A., CFP, CSA

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I am selling a rental coop in NYC for a net sales price of $200,000.

The cost basis is only $20,000 ($40k purchase -$20k depreciation).

The closing date will be in November 2004

Thinking about a 1031 exchange, do the rules allow the following:

At the November 2004 closing:

Can I put $120k in a qualified escrow account and take $80k cash to
myself?

Will this $50k qualify for long-term capital gain treatment for the
tax year 2004?

Thanks in advance,

Doug Clark

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